Channel Conflict: Is Sony Going Too Far?

Channel conflict is one of those internet buzzwords that unlike other cute transplants from the offline world has real and dire consequences for companies.

One company that's recently seen its share of channel conflict problems is Sony (SNE). A few months ago Sony angered its retailers by requiring them to sell Sony music label CDs that included hyperlinks to Columbiahouse.com - which Sony partially owns - and Sony's own Music store on the web (direct.sel.sony.com).

Were retailers angry? Of course. Retailers like Tower Records have been constantly under attack since the rise of music superstores, but now the threat of disintermediation became too much.

The result was an antitrust lawsuit against Sony by the National Association of Recording Merchandisers (NARM). The charge? The hyperlinks allowed Sony to get consumer's email and music preferences, and allowed consumers to bypass retailers without any compensation.

"I'm angry that after all the effort Tower puts into helping Sony artists, these links are being used to drive sales at Sony stores instead of at our stores," noted Stan Goman, Executive Vice President of Tower Records and Chairman of NARM's Board of Directors on the NARM web site.

Sony wasn't the only one doing this, since at the same time BMG was also beginning to explore selling direct to consumers and thereby bypassing their retailers.

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Allen Weiss is the founder and publisher of MarketingProfs.com. He can be reached at amw@marketingprofs.com.